Maximizing The Benefit From Customer Loyalty...

Loyal customers.

As CMOs, we all want them. They confirm we're creating value.

We instinctively understand the economics. They know our brand, they buy it, and are much more likely both to come back again, and to recommend it to their friends.

However, experience has taught us that loyalty cannot be bought, it has to be earned. And that goes right to the heart of what a brand stands for, how it behaves, and the value it creates for customers. It requires a company-wide commitment. 

(A simple, but powerful approach to creating Loyal Brands...)

Given the scale of commitment involved, it's essential for a brand to maximize the benefit from the loyalty it earns.

But this has to be done carefully. Try to exploit customers, and you undermine the loyalty you've tried so hard to earn. However, if you work with them, you can strengthen that loyalty, and accelerate growth.

To do this, I've always followed a simple 5 step approach.

Encourage Retention

This of course is the bedrock of any strong brand.

By focusing on earning loyalty, a brand will achieve a natural level of retention through the value it creates and what it stands for.

However, this can be increased by showing your appreciation. Provide a reward, make your customers feel special, and stay in touch. This was the basis of Tesco Clubcard. It offered a point for every $ spent. Every 13 weeks, all the points earned were converted into cash, and sent through the mail as a voucher to spend in Tesco, along with a thank you letter.

The key is unconditionality, a simple thank you, with no strings attached. As soon as you start attaching conditions (e.g. minimum spend levels, limited time periods), you undermine that sense of appreciation, and betray a desire to manipulate customers instead.

(The True Foundation Of Loyalty Marketing...)

Increase Spending 

Loyal customers buy more from you.

Over time you can encourage this, a practice often referred to as upselling. However, simply bombarding customers with offers and information because they're loyal will end up damaging their level of retention.

Instead, use what you learn about them to highlight products and services they are going to find useful. Again, this was built into Clubcard, through personalised bonus coupons. And of course, Amazon and Netflix provide personalised recommendations, by tracking behavior.

Nurture advocacy

Loyal customers attract new customers.

This has always been true. I don't know how many times customers have told me they first tried a brand, thanks to their family or friends. However, with today's connected world, this has become even more important. They are not only likely to reach larger networks, but can also build your reputation, through such things as reviews.

By focusing the brand on earning loyalty, some of this will happen naturally. However, it's certainly worth nurturing. Ask them for help. Make it easy for customers to share content and offers with their network. Give them a public platform to share their opinion, and find ways to thank them, if they put in a good word.

Capture Efficiencies

Loyal customers are more efficient to serve. 

For example, as several studies have shown, they complain less often, and by bringing in new customers, reduce customer acquisition costs. Again, a brand focused on loyalty will gain some benefit naturally. 

However, working with customers, further efficiencies can be captured.

Pricing is one example. While loyal customers are often found to be less price-sensitive, this can lead you down the dangerous path of giving discounts to disloyal customers, which then alienates your loyal customers. Far better to use what you learn to optimize the price and promotion mix.

For example, Tesco found that most of the promotional value loyal customers received came from only half the promotions on offer. This enabled a major reduction in the number of promotions, gaining tremendous efficiencies throughout the supply chain, without undermining loyalty.

Customer service is another example, where enabling customer support communities can realize significant cost reductions.

Improve the Experience

Finally, perhaps the most important benefit of loyalty lies in improving the customer experience.

First, by using the data they've shared with you to make their personal experience better. Car rental programs such as Hertz Gold are long standing examples of this, while Safeway's just for U program uses customer data to make shopping both cheaper and easier.

(Why Collaborating With Customers Is The Future Of Marketing Optimization) 

Second, by collaborating with customers to improve the experience for everyone. This was at the heart of Tesco's transformation back in the 90s, using the insights that came from their loyal customers to improve pricing, assortment, customer service, environment, and innovation.

By following such an approach, you achieve a virtuous circle. Loyal customers stay longer, spend more, and attract more customers. You reduce costs, and improve the experience, which then strengthens loyalty, and attracts yet more customers.

With a focus on customers, earning loyalty and maximizing loyalty work together, to accelerate growth.

In a hyper-competitive world, what could be more powerful...